November 09, 2017

During October 2017 the California Supreme Court ruled in Aviles v. Swearingen in a case of first impression of the recently enacted Probate Code § 21310. The Court seemed to have some fun with the case when stating, “’there is no play in the joints’ in probate law” with a hat tip to late Chief Justice Rehnquist.

Peggy, with counsel, implemented a Trust in 2010. She amended the Trust three times before her death from cancer in January 2016. The Trust and its first two Amendments left all of the assets to Peggy’s boyfriend and to her various family members.

It is the Third Amendment to the Trust that is the subject matter of this case.

The appellant, a “care custodian,” and her husband own and operate a marijuana dispensary. They supplied product to Peggy without a medical approval during 2015 while she was a dependent adult and having become addicted to marijuana. The appellant found and read Peggy’s Trust and its two Amendments and prepared, without counsel, a Third Amendment and Restatement of the Trust. The appellant had herself named Successor Trustee and sole beneficiary within the Third Amendment and Restatement and attempted to incorporate previously stated no-contest clauses into that document.

While Peggy was on her deathbed, the appellant took Peggy’s vintage wine collection, her Mercedes, an expensive collection of handbags and Peggy’s jewelry box and also accessed Peggy’s bank accounts and safety deposit box which held a $100,000 jewelry collection.

Upon Peggy’s death, the appellant presented the Third Amendment of the Trust to Peggy’s boyfriend and family members. In addition to litigating the validity of the Third Amendment of the Trust due to undue influence, financial abuse and coercion, the no contest clause was litigated. The appellant was removed as Successor Trustee and the no contest clause in the Third Amendment was ruled invalid. The case had not been fully litigated at the time of this appeal.

Here, the Court pointed out that strict construction of the statute is required. “Simply stated, the no contest clause in the Second Amendment, does not apply to future trust amendments, such as the Third Amendment, unless the amendment specifically refers to the no contest clause.” The Third Amendment did not adhere to the relevant statute and the no contest clause failed.

The Court continued “an instrument that is the product of menace, duress, fraud, or undue influence is not an expression of the transferor’s free will and should not be enforced. . . . We are guided by the fundamental truism that - put bluntly - the law is not an ass.” In other words, the Courts were unimpressed with the conniving, thievery perpetrated upon a vulnerable adult by her drug dealer.

This case reiterates that experienced trust lawyers should be involved with trust drafting and they don’t typically knowingly assist those committing undue influence, financial abuse or coercion.

October 30, 2017

A Ward is a person for whom a Guardian has been appointed by Court Order. Arizona law encourages and allows contact between a Ward and other persons who have a significant relationship with the Ward. A.R.S. § 14-5316(A). A significant relationship means the person either is related to the Ward by blood or marriage or is a close friend of the Ward as established by a history of pattern and practice. A.R.S. § 14-5101.

Notwithstanding the above, a Guardian may limit or restrict contact between a Ward and any person if the Guardian reasonably believes that the contact will be detrimental to the Ward’s health, safety or welfare. A.R.S. § 14-5316(B). Factors relevant to a Ward’s physical and emotional well-being are past and present relationship, mental and physical health of the Ward and the person with whom the contact is requested, and whether or not the person has abused drugs or alcohol, been convicted of any related crime, or has committed any act involving domestic violence as defined in A.R.S. § 13-3601.

A person who has a significant relationship with a Ward may petition the Court to modify a contact order if a material change in circumstances affecting the Ward’s health, safety or welfare has occurred since the last contact order was made. The Court shall deny the petition unless it finds that the petition establishes good cause for a hearing. That person may also file a motion requesting a temporary modification or suspension of a contact order for the same reasons. After that, the person must prove to the Court that modification of a contact order is in the best interest of the Ward.

October 17, 2017

Good question. It depends. If you live in Arizona and own real estate valued at $100,000 or more, you may decide a revocable trust is right for you. Having a trust has very little to do with lessening tax burdens. Rather, a trust is the vehicle used to avoid probate court during life and upon death and negates time restraints that will arise without a trust.

Probate court during life? Sure. Guardianships and Conservatorships are proceedings that can last decades for those who are unable to care for themselves financially or medically. Think car accident, stroke, dementia. Those can be sudden and life altering events or creeping diseases which can change everything. Having a trust can avoid strangers telling your loved ones what to do with your property and avoid the cost of court-appointed attorneys that are required.

If a person decides to have a trust, it is important to fully fund it. For most people that means recording a deed transferring ownership of any real property they own individually or jointly to the trustee of their trust. Their bank and investment accounts would be retitled as well. Vehicles, boats, motor homes and like assets may easily be transferred to the trustee too.

The benefits of utilizing a trust to hold your assets during life and transfer your assets upon your death far outweigh any downside, of which there are few. Trusts are not for everyone. But it might be for you. They are flexible and may be changed anytime.

September 14, 2015

The Arizona Court of Appeals Division One on April 9, 2015 filed an opinion in Pinnamaneni v. ROC, et al. The issue on appeal caused the court to interpret statutory requirements of a “person injured” when determining eligibility for compensation from the Residential Contractors’ Recovery Fund.

In 2003, Mr. Pinnamaneni began designing a home to be built on property owned by his Revocable Trust. The home was to become the personal residence of him and his family. Mr. Pinnamaneni utilized his limited liability corporation to negotiate all contractual and financial issues with the contractor. The contractor was later found to have performed deficient work and his license was recommended be revoked by an administrative law judge. The contractor then filed for bankruptcy.

Mr. Pinnamaneni, individually and as trustee of his revocable trust for which he was the trustor, trustee and a beneficiary, and his limited liability corporation filed a joint claim with the Fund for damages caused by the faulty construction. The ROC denied their claim because they did not meet the definition of “person injured” as defined by A.R.S. § 32-1131(3) which is defined in part as the owner of residential real property, who occupies or intends to occupy the residence, and who is damaged by a residential contractor’s deficient work.

The court concluded “that an individual who occupies or intends to occupy the residence, and who is the trustor, trustee and beneficiary of a revocable trust that owns the property, meets the statutory owner-occupant requirement of § 32-1131.” The court awarded reasonable attorneys fees and costs. The court reversed the decision of the superior court that affirmed the ROC order and remanded for further proceedings.

Law Offices of E. Cameron Pickett, P.L.L.C. performs legal services for trustors, trustees and beneficiaries throughout Arizona and California and is based in Chandler, Arizona.

September 03, 2015

The Sixth Appellate District in the Court of Appeal of the State of California filed a decision on July 30, 2015 in Sanders v. Yanez. The issue on appeal was whether an adult adoption pursuant to the Texas adoption laws encompassed the same rights and duties as a California parent-child relationship.

Ms. Sanders petitioned the Superior Court regarding a family testamentary Trust and requested the Court find that her recently adopted son be recognized as a beneficiary. Ms. Sanders is a co-trustee and an income beneficiary of this Trust. The Trust provides that upon the death of Ms. Sanders her issue will receive the Trust’s assets, and issue is defined as including adopted children. Specifically “the word ‘issue’ as used in this Will shall refer to lawful lineal descendants of all degrees and shall include legally adopted children.” The written instrument defined “issue” for all purposes related to the testamentary Trust.

California courts are required to interpret a written instrument “according to the generally accepted canons of interpretation so that the purposes of the instrument may be given effect.” Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.

The Sanders Court differentiated the immediate case from the facts of Ehrenclou v. MacDonald (2004) 117 Cal.App.4th 364 wherein an adult adoption under the laws of Colorado “create(s) in the adoptee only the status as heir at law to the person adopting, and such adoptee does not, by virtue of the adoption, become a ‘child’ or ‘issue’ of the person so adopting, and inheritance flows only through intestate succession of the adopting person and not as ‘issue’ of such persons.”

The Monterey County Superior Court concluded that Ms. Sanders’ adopted son does not fall within the definition of issue because he had been adopted as an adult under Texas adoption statutes. The Court of Appeal concluded that the Superior Court decision was not supported by the law, reversed the Superior Court order and remanded with directions to grant Ms. Sanders’ petition.

September 02, 2015

The Arizona Court of Appeals Division One filed a decision in Woestman v. Hon. Russell/Bryan et al. on July 28, 2015. The issue on Petition for Special Action was whether an Arizona trial court acted properly when appointing a conservator for a mentally ill homeless man who is a plaintiff in a personal injury matter.

Michael Woestman struck the homeless man with his car in November 2012. The homeless man retained an attorney to sue Mr. Woestman for personal injury. Later, the homeless man’s attorney successfully moved the court to appoint a Guardian ad Litem (GAL) for his client. Over time the GAL could not locate his ward and moved the court to appoint a conservator for him. Mr. Woestman opposed this motion. The GAL claimed that Mr. Woestman had no standing to object.

The court appointed a conservator for the mentally ill homeless man because he had no home state and he had a significant connection to Arizona resulting from the auto accident and the ensuing lawsuit, he had disappeared from the state during September 2013 after recovering from his injuries, and he was unable to manage his estate and affairs due to his disappearance. A.R.S. § 14-12201(A)(2) and (A)(3).

Mr. Woestman challenged the trial court’s appointment of the conservator in a Petition for Special Action. The Court of Appeals accepted jurisdiction, denied the relief requested and upheld the appointment because of the homeless man’s significant connection to Arizona, disappearance from the state and the need to preserve the homeless man’s property until he could be located.

August 21, 2015

The Arizona Court of Appeals Division One filed a decision in Hoag et al. v. Hon. French/Wells on August 18, 2015. The issue on appeal was whether Arizona obtained personal jurisdiction over a non-resident successor trustee pursuant to A.R.S. § 14-10202, where at the time the trustee accepted its appointment as successor trustee, the principal place of administration was in Arizona, but at the time the lawsuit was filed against the trustee the principal place of administration had been moved to another jurisdiction.

A.R.S. § 14-10202(A) allows “By accepting the trusteeship of a trust having its principal place of administration in this state or by moving the principal place of administration to this state, or until otherwise declared by the trustee if a proceeding regarding a matter involving the trust is not pending in a court of this state, by declaring that the trust is subject to the jurisdiction of the courts of this state, the trustee submits personally to the jurisdiction of the courts of this state regarding any matter involving the trust.”

In this case, the three Trusts at issue were created by Robert Hoag between 1994 and 2000 who funded those Trusts with stock he owned. Mr. Hoag administered these three Trusts and served as their trustee in Arizona until 2014. Wells Fargo obtained a $2.5 million judgment against Mr. Hoag personally along with another of his Trusts in November 2012. During December 2013, Wells Fargo initiated garnishment proceedings. Mr. Hoag resigned as trustee of the three Trusts on February 4, 2014 and appointed a corporation operating out of the Bahamas as successor trustee. Thereafter, the relevant Trusts have been administered from the Bahamas.

On June 4, 2014 Wells Fargo filed the underlying lawsuit and alleged that Mr. Hoag fraudulently concealed his assets by transferring them to these three Trusts. The Bahamian successor trustee was served and subsequently moved to dismiss for lack of personal jurisdiction. The court denied the motion. The Court of Appeals reversed and remanded upon special action jurisdiction.

Courts interpret statutes based upon the language therein. If a statute is clear, the plain meaning must be followed. Here, the words interpreted included “accepting trusteeship” and “having its principal place of administration,” both clauses describing present action, not past action. Because the principal place of administration was removed to the Bahamas and the successor trustee did not expressly declare that the Trusts would be subject to personal jurisdiction in Arizona, the successor trustee did not submit to personal jurisdiction in Arizona.

The Court also decided that the Bahamian successor trustee did not submit to personal jurisdiction based upon specific jurisdiction actions. It’s conduct as successor trustee, the fact that the assets are outside Arizona, and no actions occurred in Arizona as it related to transferring trusteeship duties and administration, did not rise to the level of sufficient minimum contacts.

The Court did note that they did not reach the issue of whether personal jurisdiction would exist if the Bahamian successor trustee had intentionally assisted Mr. Hoag in fraudulently concealing his assets by removing them from Arizona. This is separate and distinct conduct from the allegations that Mr. Hoag fraudulently concealed his assets by transferring them to the relevant Trusts. The Court noted that, depending on the circumstances of a case, such intentional conduct might be sufficient to create the minimum contacts necessary for personal jurisdiction.

August 12, 2015

The Arizona Court of Appeals Division One filed a decision in the Matter of the Estate of Augusta A. Ganoni, Deceased on May 28, 2015. The issue on appeal was whether the “owner” who executes a beneficiary deed must be a natural person.

A.R.S. § 33-405 allows “a deed that conveys an interest in real property, including any debt secured by a lien on real property, to a grantee beneficiary designated by the owner and that expressly states that the deed is effective on the death of the owner transfers the interest to the designated grantee beneficiary effective on the death of the owner subject to all conveyances, assignments, contracts, mortgages, deeds of trust, liens, security pledges and other encumbrances made by the owner or to which the owner was subject during the owner's lifetime.”

In this case, during 2003 the owner transferred her interest in the real property from herself, a single woman, to herself as trustee of her revocable trust. Later that year, she executed a Beneficiary Deed in her capacity as trustee to another individual upon her death. She later amended her trust and she resigned as trustee. Then, the owner restated the trust, she renamed the successor trustee and she amended the beneficiary designations. The owner died shortly thereafter.

Litigation ensued regarding ownership of the real property: the successor trustee of the trust or the designated beneficiary listed upon the Beneficiary Deed. Courts interpret statutes based upon the language therein. If a statute is clear, the plain meaning must be followed.

A.R.S. § 33-405 is clear and requires a natural person to be the transferee of property “effective on the death of the owner” and subject to any encumbrances “made by the owner or to which the owner was subject during the owner’s lifetime.” A natural person dies. A trust terminates. The statute is clear.

If a person wishes to utilize a Beneficiary Deed rather than their trust to transfer property upon their death, they should transfer the real property from the trustee of their trust to themselves as individuals prior to executing the Beneficiary Deed.

October 06, 2014

The Uniform Fiduciary Access to Digital Assets Act (UFADAA) was approved on July 16, 2014 by the Uniform Law Commission (ULC). The purpose of the UFADAA is to solve the problem of lack of access, control, or copies to and of digital assets and accounts by fiduciaries. Banking, investment securities, agency, probate, trust, and fiduciary laws are not to be otherwise affected by UFADAA.

The replacement of tangible assets such as documents previously stored in paper files and filing cabinets with documents stored electronically has created problems for fiduciaries needing access to such assets.

Digital assets include online bank accounts, online investment accounts, online gaming items, online photos and videos, online digital music, backups to the cloud, email accounts and the like. The value of these assets can easily exceed the value of personal assets that may be transferred without probate. That value is currently $75,000 (A.R.S. § 14-3971) in Arizona. Access to these assets can be quite difficult once a person is unable to handle his affairs or is deceased.

The fiduciaries who are considered under UFADAA include personal representatives of a deceased person’s estate; guardians or conservators of a protected person’s estate; agents under a power of attorney; and trustees. Fiduciaries acting pursuant to their powers are a separate and distinct class than family members or friends seeking access and should be treated as such by the holder’s of these assets.

The main thrust of UFADAA is that if a fiduciary would have access to and control of a tangible asset, that fiduciary should have access to and control of similar assets held as a digital asset. A generally uniform approach among the states to this issue may be the result of UFADAA approval. The issues are expected to be studied and addressed by each adopting state over time.

In the meantime, estate planners will serve their clients well by incorporating a Digital Power of Attorney into the package of documents to be prepared for their clients and by including the appointment of a separate Digital Asset Personal Representative within their client’s Last Wills.

June 02, 2011

The Wall Street Journal reported in its May 26, 2011 Personal Finance section that the IRS has embarked upon a “low-profile but sweeping effort” to uncover gifts of real estate that have not been reported. This effort is generally going to uncover transfers made by do it yourselfers who think they are capable of creating their own estate plans. Indeed, lawyers involved in these mechanisms for transferring wealth would either counsel against it or ensure that the proper tax forms were timely filed. The middle class will bear the brunt of this effort by the IRS in large part because they do not realize that their actions are “gifts.”

The issue generally arises when a parent decides to “make things easier” by transferring title to real property to a child during the life of the parent. In their minds, the transferor is not actually making a gift, rather, they are just “putting their children on title with them” to avoid legal fees later. Individuals generally transfer title to real estate from themselves to them and others in joint tenancy. The presumption is that the transferor will die first and that no problems could arise during their life. This transfer is a gift upon the date the joint tenancy deed is created.

I won’t get into the multitude of legal issues that can arise from these ill advised transfers other than the immediate issue which was raised in the WSJ article: gift taxes. As the law stands today, a person may generally give property worth $5 million without paying gift tax. The lifetime exclusion per person was $1 million through 2010. However, any time a gift exceeds $13,000 to any person, the transferor is required to file a federal form 709. Such form is generally filed at the time their income tax return is due.

Why is this important? There are penalties for not filing the tax return timely, for valuation understatements that cause an underpayment of tax, and for willful attempt to evade or defeat payments of taxes. See IRS 2010 Instructions for Form 709.

How is the IRS going about this quest? In California, the IRS requested a “John Doe summons” be issued by a federal judge to the State Board of Equalization, a taxing agency. The judge declined to issue the summons because the IRS had not demonstrated that the IRS could not get the data requested in a different way. Apparently, court records indicate that Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington and Wisconsin have willingly handed over the information. The report indicates that the data showed “an extremely high failure-to-report rate.”

The best approach to address these issues is to actually file the requisite returns, even if they are late. There are many capable tax and estate planning attorneys who can assist. It is well worth the time and effort to hire one to do just that.